This is an entirely free service. No payments are to be made. Also send me The Ultimate Guide to Profiting From Derivatives and sign me up for Profit Hunter,a free newsletter that focuses on identifying short term money making opportunities.Download NowSubscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.

Net profits up 27% YoY, duly aided by gains on sale of investments and lower depreciation expense. Excluding the impact of investment gains, net profits are down 15% YoY during 2QFY08.

Signs EPC contract with Toshiba Corporation for supply of five 800 MW steam turbine generators for the Mundra ultra mega power project.

Financial performance snapshot

(Rs m)

2QFY07

2QFY08

Change

1HFY07

1HFY08

Change

Sales

11,998

13,506

12.6%

25,682

28,620

11.4%

Expenditure

9,483

10,803

13.9%

20,725

23,051

11.2%

Operating profit (EBDITA)

2,515

2,703

7.5%

4,957

5,569

12.3%

Operating profit margin (%)

21.0%

20.0%

19.3%

19.5%

Other income

783

463

-40.9%

1,193

1,078

-9.6%

Interest

408

414

1.5%

793

972

22.5%

Depreciation

731

709

-3.0%

1,491

1,423

-4.6%

Profit before tax

2,160

2,043

-5.4%

3,866

4,252

10.0%

Extraordinary income/(expense)

-

851

-

921

Tax

137

320

134.4%

624

697

11.7%

Profit after tax/(loss)

2,023

2,574

27.2%

3,242

4,476

38.1%

Net profit margin (%)

16.9%

19.1%

12.6%

15.6%

No. of shares

207.8

Diluted earnings per share (Rs)*

39.5

P/E ratio (x)*

31.1

* On a trailing 12 month basis

What is the company’s business?

Tata Power (TPC) is the largest private player in the power sector with a generation capacity of 2,324 MW, which is around 19% of the total power generation capacity of the private sector in India and a mere 2% of the country’s total capacity. Out of this installed capacity, around 80% is used for supplying electricity to the Mumbai region. Apart from power generation, the company also has interests in areas like transmission and distribution and power trading.

What has driven performance in 2QFY08?

Higher generation, volume sales aid topline: Tata Power recorded a 13% YoY growth in sales during 2QFY08. This was on the back of 8% YoY increase in electricity sales. Higher sales were aided by a 5% YoY increase in generation volumes as the company’s plants in Trombay and Jojobera recorded high rates of capacity utilisation. The company’s business in the Mumbai license recorded sales growth of 16% YoY during the quarter. These sales contributed to 87% of the company’s 2QFY08 total sales (84% in 2QFY07). These were duly helped by the fact that Tata Power brought 60 MW of power from its Belgaum plant to Mumbai through its trading arm to meet the city’s rising requirements.

The management has indicated that work on its 4,000 MW ultra mega power project at Mundra is progressing on schedule. After completing the acquisition of 30% stake in the Indonesian coal mining company for securing fuel for this plant, this quarter saw Tata Power signing an EPC contract with Toshiba Corporation for supply of five 800 MW steam turbine generators.

Higher fuel costs dent margins: Tata Power recorded a 1% YoY contraction in its operating margins during 2QFY08. This was due to higher fuel costs, which increased from 51% of sales in 2QFY07 to 57.8% of sales in 2QFY08. However, the company’s cost of power purchased dropped by 4.9% as percentage of sales, which took off some pressure from the operating profitability.

‘Extraordinary’ aid to bottomline: Despite the contraction in operating margins, Tata Power’s bottomline growth outperformed its topline growth during 2QFY08. This was made possible by Rs 851 m gain on sale of investments. Excluding the same, the net profits have actually declined by 15% YoY for the quarter.

What to expect?

At the current price of Rs 1,228, the stock is trading at a multiple of 3.2 times our estimated FY10 book value for the company. The fact that the stock has moved up sharply over the past month despite any change in business fundamentals makes us a bit cautious. However, considering that the company is progressing well on its generation capacity expansion plans, we maintain our positive view on the long-term growth prospects of the company. We shall soon update our research report on the company.

OTHER USEFUL LINKS

MARKET STATS

ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.